As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Thursday, March 05, 2009

Banksters Still Banksting

There is an expected vote today on the compromise "cramdown" bill in the House. There has already been a recorded vote on the rule today, and not one Republican voted for it, but it passed anyway. They are truly sinking further into irrelevance.

The compromise bill, as I've said, is not bad, although the major concessions are that people "underwater" in their homes (owing more principle than current value) won't get help, and the reductions are likely to be on interest rather than principle. Not great, but if people can stay in their homes as a result, probably OK. Right now 1 in 8 homeowners in the country are behind in payments, so they need whatever relief they can get.

However, the group likely to get the most relief out of the eventual loan modification process are the lenders themselves.

By the Obama administration's account, its new housing rescue plan, which goes into effect on Wednesday, will pull up to 4 million homeowners back from the brink of foreclosure. It also offers another 5 million or so excessively indebted borrowers the chance to refinance into lower-interest loans.

But the biggest winners in the government's $275 billion homeowner bailout just might be the mortgage brokers who were largely responsible for creating the disaster in the first place. Many are now reinventing themselves as heroes of the mortgage crisis by offering loan modification services. And between its new cash support and the refinancing program, through which they can benefit from the federal aid via brokers' fees, the Obama homeowner bailout might as well be a full employment program for them. The Treasury Department's FAQ for borrowers warns, "Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance." But nothing in the homeowner bailout prevents these middlemen from stepping in and taking a cut.

In California, home to nearly one-fourth of all the foreclosures in the country, there are now applications pending from some 500 brokers and real estate agents seeking to get in on this new line of business, which hardly existed six months ago (but now has its own trade group). California's Department of Real Estate, which licenses mortgage brokers and real estate agents, has so far authorized more than 200 companies to negotiate with mortgage lenders to modify loans, and the list grows longer every week. They may charge borrowers whatever they choose for this service, as long as they only collect a portion of the fee upfront and take the rest once the job is completed. The going rate ranges from a flat $2,985 to about 1 percent of the amount of the mortgage, or $4,000 on a $400,000 loan.

The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.

Especially when you consider that the Administration sets the average price of this modification at around $10,000 a home, which is a pittance, but with interest accruing over 30-40 years could be massive, you see the game being played here. And this is just one way for disgraced brokers to make money out of this chaos. Here's another.

...it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.

Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.

The Times doesn't call it fraud, but that's a credible accounting of things.

These are the consequences of condensed power, yes, but also the consequence of a lack of accountability for those who caused this crisis. Government could actually go ahead and strip these people of the license to do business in this industry - especially Countrywide, known to have defrauded their customers.